Expected USD/CAD Range: 1.028 – 1.033
Update: The Canadian Dollar is stronger this morning after July GDP figures came in at better than expected (0.6% vs consensus of 0.5%). This latest data point reinforces the recently developing view that the Canadian economy is doing better than the market expected just a few months ago. The loonie is trading up by 0.3% at around 1.028. In the meantime, south of the border, Congress is slowly but surely moving towards a government shutdown as part of the Republican battle to delay and eventually defund Obamacare. We do not expect the shutdown to last more than a few days and consequently do not expect it to be all that impactful on the currency market.
The Big Picture: The commodity boom has seemingly ended (or is at least sputtering). Relatedly, Chinese and other emerging market economies have slowed notably and while some of the data from China is encouraging, it is becoming clear that sub 8% growth in China is here to stay. At the same time, the ongoing (admittedly halting) recovery in the US will sooner or later lead to a tapering of the Fed’s bond purchase programs. Closer to home, Canada’s new central banker is optimistic about our recovery but shows no inclination towards raising rates in the next several quarters. As a result of all of this and not surprisingly, the CAD has declined over 3% relative to the USD since the beginning of the year. We expect the CAD to be even lower relative to its US counterpart by the end of the year.
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